RHB Bank Singapore has initiated coverage on CSE Global 544 with a “buy” call and target price of 58 cents, given its exposure to global growth and green energy across diversified segments.
KGI Securities analyst Tang Kai Jie has also initiated coverage with an “outperform” recommendation and a target price of 60 cents, citing growing energy demand and order book.
RHB’s Alfie Yeo forecasts a compound annual growth rate (CAGR) of 16% for the group’s earnings between FY2023 to FY2026 earnings driven by its current strong orderbook, especially the electrification segment and acquisitions in the communications segment.
CSE has seen an increase in topline revenue over the years, with a 30% growth in revenue y-o-y in FY2023 to $725.1 million.
In 1H2024 ended June CSE reported revenue of $428.9 million, increasing by 22.8% y-o-y, and making up 59.2% of its FY2023 revenue.
To this end, Tang expects the company’s FY2024 revenue to “blow past” its FY2023 figures as the world sees higher energy demand and an increase in uptake of renewable energy as a source of energy in 2024.
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Yeo notes that CSE is a systems integrator providing electrification, communications and automation solutions, offering exposure on green energy such as renewable energy (RE) and EV infrastructure, critical communications and infrastructure development across US, UK, Singapore, Australia and New Zealand.
According to Precedence Research, the US electrification market is forecasted at US$30.28 billion ($40.56 billion) in 2024 and is projected to be US$72.94 billion in 2034, growing at a 9.2% CAGR during the forecast period.
This is driven by green energy adoption leading to electrical infrastructure development for electrification systems and infrastructure where CSE is a beneficiary.
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“We see growth driven by the electrification and communications segments, with the automaton segment’s outlook remaining stable,” Yeo says, noting that the electrification segment is driven by infrastructure and RE development.
This is due to increasing demand for electricity due to digitisation, information technology (IT), automation, more data centres (DC), adoption of EV, more efficient utility installation which drives more power grid electrification.
According to KGI’s Tang, the significant advancement in artificial intelligence (AI) has been driving energy demand from DC, translating to a higher demand for electrification projects globally.
The growth in the communications segment will be supported by acquisitions in the US, where it is looking to increase its contributions.
CSE’s critical communications business is present in the UK, US, Australia and New Zealand and Singapore.
The group recently announced the US$11.5 million acquisition of RFC Wireless Inc, an advanced communications solutions provider. The acquisition is earnings accretive and will contribute around 13% to CSE’s existing net profit, based on net profit ended 31 December 2023.
Additionally, Yeo notes that CSE has a “robust” orderbook of $634 million as at September 2024, while its order intake continued to be strong at $565 million.
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Tang concurs, adding that the continuation of a strong order book presents strong cash flow for the company moving forward, alongside an enhanced market position.
CSE typically recognises 50% to 150% of the previous year’s order revenue.
Furthermore, Tang recognises that CSE also provides their existing clients with services such as routine checks and maintenance. This adds an additional layer of revenue drivers for the company, leading to recurring business that maintains a stable cash flow.
Yeo identifies key downside risks as including unforeseen project cost overruns and arbitration by customers for failure to deliver its services, which can potentially dampen earnings and margins.
As at 4.52pm, shares in CSE were trading flat at 46.5 cents.
